Photo: AFP
Photo: AFP

The last mile in direct benefits transfer

Higher commissions for banks and agents in rural areas will bring substantial returns to the govt immediately

Whatever criticism one may have of the present government, the lack of big ideas and push to implement the direct benefits transfer (DBT) cannot figure in them.

Fixing the leaky subsidy regime is a massive challenge, politically and operationally, and this is being taken on. Although multiple solutions have been proposed over the past decade, getting everyone a bank account is the first step for DBT. Here, the big idea of Pradhan Mantri Jan-Dhan Yojana (PMJDY) came to the forefront. The next big idea came from the Economic Survey—the JAM (Jan Dhan+Aadhaar+Mobile) trinity to effectively target subsidies. Niti Aayog has taken the idea further, to use the JAM trinity to match all existing DBT and socioeconomic databases. While cleaning out databases and matching them will be challenging, the policy intent is clear—widening the coverage of DBT, reducing leakages and moving towards precisely targeted subsidies.

The government has gone beyond just talk; there has been considerable action with many pieces falling into place to streamline the DBT process. The Aadhaar imbroglio that had hit liquified petroleum gas subsidy transfers last year was resolved, allowing the option of bank accounts, and both Aadhaar and PMJDY coverage continue to expand at a fast clip. Last December, 27 DBT schemes were extended from the initial 121 districts to the entire country, and 7 scholarship schemes were added. From April, the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) has been added to the DBT platform in 300 districts—this is a big step forward. The notifications on the MGNREGS payouts process show a willingness to address existing operational bottlenecks. For instance, payment of commissions to banks is now due on credit into the beneficiary account, rather than on withdrawal—this takes care of a major concern for the banks that are investing in extending services to all DBT beneficiaries in the last mile.

Further, all central sector and centrally-sponsored schemes under DBT had a May-end deadline to implement electronic transfers of payments directly into beneficiary accounts and to complete digitization of beneficiary lists and seed them with Aadhaar numbers by end-June.

Achieving these deadlines would represent a major milestone in the DBT initiative. The department of financial services has improved monitoring effectiveness, and has moved beyond account opening as a sole target. The new monitoring parameters include indicators such as zero-balance accounts, active business correspondent agents and agents getting the minimum remuneration prescribed by PMJDY. So there is a sharp focus on account usage and system efficiency.

Yet, in all this, one critical issue—the commercial viability of the network that connects to the beneficiaries at the last mile—doesn’t seem to be getting due attention. The DBT commissions issue has always been contentious. In 2012, the Task Force on an Aadhaar-Enabled Unified Payment Infrastructure had estimated a 3.14% commission as essential to ensure a robust rollout of agents, but in reality the rates allowed have been 1-2%. In January, the finance ministry fixed DBT commissions for banks: for urban schemes, at the National Electronic Funds Transfer/ Aadhaar Payment Bridge rate, but for rural schemes, the rate was fixed at 1%, subject to an upper limit of 10 per transaction.

The ground reality is that banks and their agents bear the responsibility of providing services to beneficiaries across the country, but in the absence of adequate compensation, the links are breaking. Since 2006, banks have been given targets to cover villages, and while the number of agents kept growing on paper, in reality Consultative Group to Assist the Poor-College of Agricultural Banking and MicroSave surveys have shown high levels of dormancy and attrition. With low numbers of daily transactions, the commission levels per transaction are too meagre for an agent’s sustenance. The problem lies precisely in the rural areas, particularly where population and transaction levels are low and the burden of banking rests solely on the agents.

The latest detailed costing analysis from MicroSave shows that 2.36% is the break-even charge. Two points stand out in the MicroSave analysis: a) cost as a percentage of transaction value will decline substantially as volumes increase over time, and b) the savings to the government through lower administrative costs and leakages are significant, e.g. comparable to covering this year’s outlay of the rural development ministry. Details of costing and savings can be seen in the study, but the point is that higher commissions, at least 3% in rural areas, are absolutely crucial now, are not needed in perpetuity and will bring substantial returns to the government immediately. Interestingly, in the Jan Suraksha schemes, higher payouts are specified— 30 to the business correspondent/micro/corporate agent and 11 to the participating bank of the 330 annual premium, approximating 10% commission.

The finance ministry must address this lacuna in DBT at the earliest. Without sufficient bread and butter for agents at the last mile, all the big ideas and push will come to naught and the road ahead for inclusion will end up in a jam.

Sumita Kale is with the Indicus Centre for Financial Inclusion.

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